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From Dr. Scott Sampson's Understanding Services Businesses Book (click for table of contents)
SBP 1b: Defining by Customer Content⇐Prior —[in Unit 1: Unified Services Theory Basics]— Next⇒SBP 1d: Identifying the Production Process

SBP 1c: Identifying the Customer

With services, “the customer” is sometimes not clearly defined. Generally, the customer is the individual or entity who directly or indirectly decides whether or not the firm shall be compensated for production. The actual paying customer may desire a non-paying “critical audience” to be satisfied with production, qualifying the critical audience as an indirect customer.

Why it occurs

This principle occurs because companies can have many stakeholders, some providing inputs and some merely consuming outputs. Since the Unified Services Theory is based on the idea of customer inputs, it is necessary to clearly define who the customer is.

Details

Some fields, such as marketing, distinguish between primary customers and secondary customers, which is similar to the distinction made in this service principle.

The value in defining different categories of customers is recognizing that sometimes the beneficiary of the service process is not the one to provide compensation to the producer. Both groups of customers are important, and either might provide inputs to the service process.

In some instances, different groups may each provide part of the compensation, such as state universities who are funded by the state (legislators or taxpayers), by the students (tuition), and by alumni and other donors. However, students are generally the only one of these groups to provide non-monetary inputs into the production process.

For example

In most cases, identifying the customer is a simple task. The following are less-obvious examples:

Who is the customer of higher education? I have yet to meet a student who was not sure they were the customer. In a sense they are direct customers, given that their tuition pays a portion of university expenses. However, at many universities and colleges most of the university budget comes from other entities such as governments or other sponsoring organizations. No doubt the state legislature (supposedly representing the taxpayers) is a primary customer of state university. Few legislators actually provide inputs to the education production process (thank goodness!), other than allocating taxpayer moneys. The legislators are concerned about the value being added to students, who are inputs to the process.

capitol

Are prospective employers and recruiters the customers of higher education? The education process can certainly operate without their inputs, and they do not usually provide compensation directly to the university. Nevertheless, they are a critical audience that is important to students and other university sponsors.

Is broadcast radio a service? Who is the customer of radio-broadcast companies? Listeners are a critical audience, but the actual paying customers are the advertisers. Broadcasters could certainly execute the broadcasting process without listener inputs. However, if their ultimate purpose is to sell and attract viewers of advertisements, it is impossible to accomplish that purpose without information from advertisers (i.e. the advertising material).

Are government agencies services? Who are their customers? Again, the paying entity is the legislature, who legislates the existence of agencies. Most legislators answer to the voters and taxpayers, who are a critical audience whose needs are supposedly served by the agency.

The following are some examples of groups that serve as critical audiences:

  • Regulators. The County Health Department is a critical audience for restaurants. The State Professional Licensing Board is a critical audience for doctors, engineers, etc.

Regulators. The County Health Department is a critical audience for restaurants. The State Professional Licensing Board is a critical audience for doctors, engineers, etc.

  • Certifying Organizations. ASE (Automotive Service Excellence) certifies the skill of auto mechanics. The AACSB (American Association of Collegiate Schools of Business) accredits schools of business. The Bar Association certifies attorneys

Certifying Organizations. ASE (Automotive Service Excellence) certifies the skill of auto mechanics. The AACSB (American Association of Collegiate Schools of Business) accredits schools of business. The Bar Association certifies attorneys.

  • Special interest groups. The American Association of Retired Persons (AARP) is a critical audience for hotels who want to be have AARP promotion. The Automotive Association of America (AAA) has tow-truck service affiliations to direct the business of AAA members.

My airline example

The most obvious customer of airlines is passengers. However, some airlines are selected by the passengers' employers. For example, when I was teaching at a state university we had a thick contract that identified the carrier we were supposed to fly on for flights to specific destinations, and the contracted price. In that case the customer is whomever made that contract agreement with the airline. (Probably some legislator somewhere.) We the passengers did not pay for the tickets ourselves, but were “critical audience” customers.

The Federal Aviation Administration (FAA) is a critical audience-they do not compensate the airline, but paying customers demand that the FAA is happy with the way the airline does business.

How manufacturing differs

With manufacturing, the customer definition is the same–the individual or entity who directly or indirectly decides whether or not the firm shall be compensated for production. In most cases, the manufacturing customer is the next step or the final stop of the product distribution chain.

Analysis questions

  1. Who is the direct customer–the one who actually provides compensation for production? Do they provide direct inputs to the production process?
  2. Are there any indirect customers or “critical audiences”–those whose satisfaction is of interest to the direct customer? Do the indirect customers provide direct inputs to the production process?

Application exercise

Diagram the relationship between the various customers of your service business. Start by drawing a circle representing your service business. Draw circles representing those who assure that you are compensated for the service, with arrows pointing to the service business circle. Draw circles representing those whom you serve (typically the ones whose inputs you act upon) with arrows coming from the service business circle. These latter circles might be the same as the compensating circles, or they might not. If they are not, identify which might be called the “critical audience.” List other “critical audiences” who must be satisfied, such as regulators, certifying organizations, or special interest groups.



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